The Federal Reserve will scale back its quantitative easing program

The Chairman of the Federal Reserve has announced on Wednesday that the Quantitative Easing program may be reduced very soon possibly before the end of the year.

This has led to seismic shocks in all financial markets. According to Bernanke the whole program may end as soon as 2014 especially if the economic recovery in United States goes well. The news was expected and hotly debated by a lot of investors and economic experts. The fact that the FED will reduce its program was somewhat unexpected by the public, because some of the key economic indicators of United States provide a mixed picture about the US economic growth.

From now on both the currency and the equity markets will be much more volatile and will react to all news and reports that are published. After the announcement the US Treasuries reached the 22 month low. The US dollar started gaining value fast against its main rivals – the Euro, the Yen and the Swiss Franc. The news of the rising dollar sent the price of gold at two years lows. The reason for this is that the expectations of inflation are very low and at the same time the possibility for new crisis is not high as well.

Gold is usually used as a hedge either against inflation or in times of financial turmoil. The euro was trading as low as $1.3192 against the dollar for the first time since June 2010. The buck which had been trending lower against other major currencies since late May, recovered losses against the Yen and climbed back to above Y98. The Yen and the Swiss Franc, both of which tend to rise in times of broad nervousness among investors, did not rally. Suggesting that the dollar appreciation was driven by an adjustment in U.S. interest-rate expectations rather than by generally nervous trades.

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